Ike pushes gasoline prices back toward $4

HOUSTON

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Many stations have contracts to buy gas from suppliers based on prices set by those markets, said Tom Kloza, chief oil analyst with the Oil Price Information Service.

"They aren't gouging; they are simply passing along the wholesale cost," he said. However, a small percentage of stations owned by major oil companies are somewhat insulated from these forces, enabling them to keep prices lower.

In Knoxville, Tenn., account executive Sharon Cawood said "one of our local gasoline chains called a local TV station Thursday, sometime during the day and said, 'We're running out of gas. We're going up 80 cents a gallon... It caused a major scare.

"By the time it hit 6 o'clock news and 11 o'clock news it was like snow was falling and milk and bread were flying off the shelves."

Larry Daugherty, a talk radio host Knoxville's WQBB, said a steady stream of calls began Friday morning from people perplexed about price discrepancies.

People reported gas was selling for as low as $3.49 a gallon in some spots, and $5 at another.

"People are outraged," Daugherty said. "Everyone is having a hard time understanding all of this."

Such market fundamentals could last for another few weeks, depending on how quickly Texas and Louisiana refineries shuttered by Ike can come back on line. "It's a mess," Kloza said.

Ike shut down 14 Texas refineries with a total capacity of 3.8 million barrels of crude a day, or about 20% of the country's total output.

The average cost for a gallon of gas nationwide could head back toward all-time highs of $4 per gallon, reached over the summer when oil prices climbed toward $150 a barrel.

Gasoline prices jumped more than 11 cents since Friday, to an average $3.795 a gallon — biggest two-day increase since hurricanes Katrina and Rita devastated portions of the Gulf Coast in 2005, according to the AAA's daily survey of more than 100,000 service stations.

"For the prices to be the rate they are now, it's hard for the middle-class working person to survive it," said Glenda Lang, who spent close to $43 to receive the 10-gallon limit at an S-Mart in Columbia, S.C., on Saturday.

Kloza said prices are more likely to be higher throughout the Southeast because they get fuel from Gulf refineries. He expects nationwide prices to begin falling later in the fall, perhaps as low as $3 a gallon by year's end, based on current oil prices of about $100 per barrel.

President Bush said, "The Department of Energy and state authorities will be monitoring a gasoline crisis so consumers are not being gouged."

Ike's storm surge was less severe than predicted, potentially sparing refineries from additional flooding. However, the lack of electricity in and around Houston and western Louisiana — major hubs for oil refiners — poses a significant challenge for the energy industry.

CenterPoint Energy, the main utility in Houston, reported 1.3 million outages Saturday.

The Sabine Pipe Line, a crucial natural gas conduit, has also been shut down. The CME Group, parent of the New York Mercantile Exchange, declared a force Majeure for all remaining delivery obligations for September natural gas contracts. That temporarily frees the parties from liability for contracts that can't be executed because of the storm.